> But no less unusual than building a successful company to begin with.
Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped.
Think about it this way: from the perspective of VCs, the most successful apps of the iOS era were Uber and AirBnB. But from the perspective of entrepreneurs, the most successful app of the iOS era was the Flashlight app.
You're right that in numbers of survivors there bootstrapped ones are going to outnumber the VC ones. But in terms of total # of employees, total $ of turnover and profits I would expect it to be the reverse.
But for any individual founder, if you want to aim for 'successful enough to be relatively wealthy and worry free' then 'bootstrapped' is the way to go. If you aim for an outsize success, wealth for the next N generations and massive impact on the world (for good or for bad) it's going to be very hard to avoid the VC track.
I wrote about this long ago, but it is still quite relevant:
I sort of don't doubt that VC-funded companies are less likely to succeed than bootstrapped companies, simply because bootstrapped companies can keep afloat with consulting and VC-funded companies can't. But vastly lower odds of product success sounds like something that'll need a citation.
It seems likely that VC-funded app store pure plays without a recurring revenue SAAS component are much less likely to succeed than indie app store pure plays, but that's because VC is obviously the wrong model for one-and-done app store transactions. If you have a good idea for an app, don't raise for it (you'll have a hard time raising for it anyways).
Every time you raise a round, the outcome you're shooting for is magnified. If you're raising an A round, you're not getting acquired after your seed; you're rolling the dice on getting a much better outcome. If you're raising a B round, you've got some facsimile of product-market fit, and you've decided to take the company to the point where the only "successful" outcomes are denominated in hundreds of millions of dollars, etc.
So it's not surprising that there's a stat somewhere that says "committing to a 500MM sale decreases your odds of success over satisficing with a 50MM sale", right? Very few software companies of any provenance end up going public, but by the time you're raising a C, that's essentially what you're saying you're going to do.
It gets even worse, because a proportion of those raising another round are doing it because they're failing to grow fast enough, and are grabbing more cash before it's too late.
So you get a mix on those rolling the dice one more time in the hope of that next 10x, and those unable to get an exit, and unable to earn enough, but able to convince investors one more time that this round will pay off, and who will rarely pay off well for founders or early investors, if at all.
I've both been in companies like that and worked for a VC analysing round data to avoid putting money in companies like that...
In a company like that, I once got 10k for my original 25% stake when the company was finally acquired... I left after the 4th round or so, and there were at least a few more after I left (I stopped.paying attention. The company was acquired for only 40% above the size of the A round.
Once you're in the VC cycle though not being able to raise another round when you need it is a 100% decrease in your chance of success. So I'm not sure if that follows for any but the first. Essentially you need to keep raising until you either reach profitability at scale, are acquired or IPO, and even the latter won't help you if you aren't eventually profitable.
>Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped.
I'd wonder if taking VC money five times, failing 4 times and building a large and growing company 1 time, isn't better than bootstrapping a small and profitable company just 1 time.
The article is specifically about this value judgement. If you do not value making a profit as a company you have to find value in something else. Which is fine, different things motivate different people and should, but at least be clear that it is fundamentally a values conversation.
Disagree, it’s often best to leverage the profit motive as a tool for achieving your values-based mission, and companies are usually the best way to do that.
Companies scale up more effectively than NGOs, attract investment much more easily, and can undertake a wider array of activities to achieve their mission. Then there’s C-corps etc if you want to make it explicit.
Maybe for some of them just getting the VC funding is success. Pay yourself enough, last long enough, make good contacts... And if it fails, start over with the extra experience and contacts, or join an existing startup at a high level. Failure doesn't seem to hurt the careers of executives that much.
The definition of "success" is different between a bootstrapping business & a VC funded business. A consultant can define success as "making enough money to live off of". A VC funded business has a different definition.
So how would a study be conducted? A survey asking if the business was "successful"?
Actually, that's not a bad idea. Surveying founders at 5, 10, and 15 years after founding whether they were happy with the outcome could be enlightening. A little bit like the 7-up documentary series. It would be very interesting to see which path tends to provide the best outcomes according to the founders.
What is the Flashlight app developer success? At best the app sales supported them for a year or two. By this metric a failed VC funded company also has supported its founder (plus employees) for a year or two.
Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped.
Think about it this way: from the perspective of VCs, the most successful apps of the iOS era were Uber and AirBnB. But from the perspective of entrepreneurs, the most successful app of the iOS era was the Flashlight app.
Which one do you think was easier to build?